Oil drifts down despite China manufacturing bounce

The price of oil fell below $103 a barrel Thursday, giving back part of its gains from the day before, despite improvements in Chinese manufacturing.

By early afternoon in Europe, benchmark U.S. crude for September delivery was down 20 cents to $102.92 a barrel in electronic trading on the New York Mercantile Exchange.

On Wednesday, the Nymex contract gained 73 cents after data released by the Energy Department Wednesday showed a far larger drop in U.S. crude inventories than what analysts had expected.

Brent crude for September delivery, a benchmark for international oils, was down 20 cents to $107.83 on the ICE Futures exchange in London.

A manufacturing survey from China showed a rise in factory activity in July to its highest level in 18 months, a sign that Beijing's stimulus measures were having a positive effect.

The price of oil has stayed above $100 a barrel after a civilian jetliner was shot out of the sky last week over a part of eastern Ukraine controlled by pro-Russian separatists and as Israel's invasion of the Gaza Strip added to risks of instability in the Middle East.

The Financial Times said EU diplomats are considering new sanctions against Russia, including a proposal to ban Europeans from purchasing new debt or stock issued by Russia's largest banks.

"The oil market clearly does not expect the EU to impose sanctions against the Russian energy sector," said analysts at Commerzbank in Frankfurt in a note to clients. "The market's response would be all the more dramatic if this turned out to be the case after all."

The U.S. data Wednesday showed oil supplies fell by 3.97 million barrels for the week ended July 11. Analysts had expected a drop of 2.6 million barrels, according to a survey by Platts.

"The main factor causing the renewed decline in U.S. crude oil stocks is the still record-high rate of crude oil processing by U.S. refineries, though they are clearly turning more crude oil into refined petroleum products at present than is actually needed," the Commerzbank analysts' note said, highlighting weaker U.S. gasoline demand.